The competitive advantage of banks that adopt a multilateral model to process “cross-border” payments

By Edward Dominguez, Sr. Director B2B Connect, Visa Latin America and the Caribbean

International banking has long operated a “cross-border” payment processing model marked by delays in transactions, high costs and a lack of transparency. The traditional model for processing “cross-border” payments was designed based on bilateral intermediation between correspondent banks, which is sometimes excessive, outdated, and inefficient by today's technological standards. Currently, this model creates anxiety and headaches for financial institutions and their clients around the world. However, a new wave of innovative “fintechs” is revolutionizing the “cross-border” payments space as multilateral and intermediary-free platform models gain popularity and global scale.

One of those solutions is Visa B2B Connect, a pioneering multilateral network that Visa launched to process “cross-border” payments outside of its conventional credit card rails, and that is positioning itself as an effective alternative to eliminate unpredictability and lack of transparency of the traditional intermediation model to process “cross-border” payments.

In this blog post, we will take a close look at the challenges faced by the traditional bilateral model and will also analyze why a multilateral access model is necessary. In addition, we will detail the features and benefits of the Visa B2B Connect solution, highlighting what the benefits are for banks, financial services professionals, and their commercial clients.

Challenges of the traditional model of bilateral relationships

The traditional model of bilateral relationships between correspondent banks is based on intermediaries that facilitate “cross-border” payments. However, like any intermediation model, friction increases as more intermediaries participate in the process. This model has many unresolved challenges, including lack of transparency, mistrust among intermediaries, hidden commissions, slow processing of transactions, and high costs.

This complex network of intermediary banks makes it difficult to quickly and efficiently identify errors that can be generated in processes that rest in different hands, such as fraud situations, the possibility of effective reconciliations, and a direct interaction between the originator and beneficiary of “cross-border” payments.

Why is a multilateral model of “cross-border” payments necessary?

A multilateral model for processing “cross-border” payments solves many of the challenges presented by the traditional bilateral model of intermediary banks, by using a shared multilateral access platform where financial institutions can find each other and communicate directly without intermediaries that generate unnecessary frictions. A multilateral model makes it possible to simplify the payment process, which translates into faster transactions, lower costs, and greater transparency.

Some successful examples of multilateral payment platforms in the financial services industry can be observed in the ACH and RTGS networks, which are mostly used by regulators and financial institutions around the world for the settlement of local payments, as well as for the processing of low-value “cross-border” payments. Other more sophisticated examples are the new payment networks that are being created with the use of "blockchain" technology and that will eventually grant universal and multilateral access to the different participants in the “blockchain” networks.

Visa B2B Connect

The Visa B2B Connect platform is a multilateral network model for processing “cross-border”  payments in more than 100 different countries and currencies, and that uses distributed ledger technology (DLT) to "tokenize" payment instructions in a safe and efficient way. The platform permits participating financial institutions to communicate directly with each other, thus eliminating the need for intermediaries and improving the rationalization of “nostro” accounts.

In addition to processing payments more quickly and efficiently, it also allows for more adequate management of the liquidity necessary to process "cross-border" payments, the parameterization of transactions in accordance with the participant bank’s risk appetite and its AML & TF prevention policies, and an automated reconciliation and payment tracking mechanisms in real time.

What are the benefits of Visa B2B Connect for banks and financial services professionals, and their commercial clients?

For banks and financial services professionals, Visa B2B Connect offers a more advantageous cost structure and faster processing times to more than 100 countries and currencies, enabling financial institutions to process a higher volume of payments across both, traditional and non-conventional corridors, and thus providing a better value offer to their commercial clients.

Transparency and predictability, considered key factors when choosing a "cross-border" payment provider, are the norm and not the exception in a multilateral platform such as Visa B2B Connect, which also makes it possible to quickly identify critical problems and avoids situations involving frauds and operational errors, even before these events can occur.

By adopting new multilateral models for “cross-border” payments like Visa B2B Connect, financial institutions can remain competitive in an increasingly digitized and globalized world.

Visa B2B Connect represents a breakthrough for the “cross-border” payment industry and is disrupting the paradigms of traditional bilateral intermediation models, in a solid way.

If you are interested in learning more about B2B Connect and finding out how it can benefit your business, click here and find out.